Perspective on the Gas Tax and Car Registration Fees

By Mary E. Forsberg

INTRODUCTION

Anyone who has ever been stuck in a New Jersey traffic jam might think it odd to declare that motor vehicles are under-utilized in this state. But in a very important sense they are underutilized – not as vehicles for transportation, but for contributing revenue that helps make up for the costs that cars and trucks incur and for transportation needs in general. The Federal Highway Administration estimates that nearly 6.4 million motor vehicles were registered in New Jersey in October 2001, tenth highest in the nation. And the owners or drivers of these vehicles pay the state of New Jersey a tax every time they put gas in the tank and a fee every year when they comply with the law requiring the vehicles to be registered.

Approximating the costs of providing services and matching them to the level of benefits each taxpayer receives is imprecise. Different people have different ideas about what should be considered a cost. Should gas taxes be used only to build and maintain roads or should they help support mass transit to reduce road traffic? Should they be diverted to preserve open space as was unsuccessfully attempted by former Governor Whitman? Who benefits from transportation spending and by how much? Should bigger, heavier cars and trucks pay more because they cause more damage to roads?

These are all questions worthy of public debate. But what is clear from the very start is that, when compared to other states and to its own needs, New Jersey is undercharging motorists. Maintaining such a policy has serious financial and quality-of-life implications for all New Jerseyans.

The inflation-adjusted price of gasoline is lower today than it has been for much of the post World War Two era. The National Research Council in 1997 found that declining real gasoline prices and rising incomes have led to a 30 percent increase in motor vehicle travel in the United States in the previous 10-year period. Federal Highway Administration research shows that from 1998 to 1999 alone, US gasoline consumption rose by 2.5 percent and vehicle miles traveled increased by 1.4 percent.

None of this would surprise harried New Jersey motorists. But what they might not realize is that, at 10.5 cents per gallon for gasoline and 13.5 cents per gallon for diesel fuel, the state collects far less in motor fuels taxes than it could – or should. Data from the American Petroleum Institute show that New Jersey has the third lowest gas excise tax and the fourth lowest diesel fuel excise tax in the entire nation. Although many states subject gasoline sales to a sales tax, New Jersey does not. As a consequence, gasoline is cheaper in New Jersey than in neighboring states. Indeed, on February 2, 2002, New Jersey drivers paid an average of $1.03 for a gallon of regular gasoline that cost drivers in New York $1.23 and in Pennsylvania $1.13.

Meanwhile, as the number of vehicles in New Jersey has increased, the amount charged to register a car in the state has gone down. The maximum amount the state now charges is $73.50 – $20 less than in 1992.

When gas tax and car registration fees are calculated on a per capita basis, New Jersey ranks 48th at $105 (see Appendix A). Only Georgia and New York rank lower.

Taxing motor vehicles – through the gas levy and registration fees – at rates below those of most other states causes a number of problems for New Jersey:

-Loss of valuable state revenues
-The need to find the money elsewhere for transportation improvements at a time of economic recession that increases pressure on the state budget
-Missed opportunities to improve the quality of life in this state by discouraging sprawl and pollution

Clearly something is amiss: this is a state where commutes to work are among the nation’s longest, and it has little to do with distance. It has mostly to do with congestion and the amount of time New Jersey drivers must sit in traffic. Keeping the price of gasoline lower than in neighboring states does nothing to discourage people from driving alone rather than take mass transit or carpool.

State policy is counter-intuitive in another respect. In January, when the NJ Transit Board of Directors agreed to raise bus and rail fares, the move was defended in part on grounds that there had been no increase since 1991. By this logic alone, a gas tax increase is long overdue: the last gas tax increase was in 1988 – three years before the NJ Transit hike. Indeed, all but four states have raised their gasoline taxes since New Jersey’s last increase.